For real estate investors looking to go bigger, it really might be wise to go west.
Texas has a reputation for doing everything bigger, and real estate is no exception. However, beyond bigger houses, bigger parcels of land, and bigger BBQ restaurants, the Lone Star State might just offer bigger pools of non-performing notes and REOs, as well as spreads too.
The word in the media suggests Texas is the place for businesses and job hunters to move. But, in addition to a rapidly growing economy and home prices, Texas banks certainly held a sizable stock of distressed assets and defaulting loans as we moved into the third quarter.
So now that Texas banks have reported their figures for Q3 2013, what does the real estate landscape look like for investors? And where are the best places to wrangle a sweet deal on an REO or portfolio of mortgage notes?
Deserts and Dollars in the Ground: How Do Texas Bank Numbers Break Down Now?
A November 1 report from the Texas Association of Realtors and analysis by Texas A&M University proclaims “the weather is cooling off, but the real estate market remains red hot.”
In fact, the statistics highlighted in the Texas Quarterly Housing Report show demand and home prices hitting historic highs in the state, while inventory dipped to a historic low.
The figures shows over 80,000 single-family residences changed hands in the last quarter, almost 20% more than in the same period of 2012. Home prices also rose by double digits year-over-year despite rising interest rates, bucking normal seasonal trends.
Inventory for sale was reported down by almost 30% since last year to just four months, with almost a quarter of Texas markets holding three months’ worth of inventory including Dallas and Austin.
This is all great news for local landlords and mortgage note holders. It’s also great for flipping, for those that already have stock to turn.
The question is: despite how affordable the state has been and its status as a superior magnet for corporations and those on the job search, is there enough inventory, with sufficient spread to make it worth focusing on as we roll into 2014?
To find out what’s under the surface and if it is worth setting up your own pipeline it requires looking at the raw bank data.
Q3 Distressed Data from Texas Banks
Entering the third quarter, 544 Texas banks reported a sum of $1.2 billion worth of REOs on hand and $2.7 billion in non-performing residential loan notes. Apparently the only thing not big about this state is the dent being made in this shadow inventory.
Third-Quarter Texas Bank Reporting Highlights
- Banks still hold $996,613,000 in REOs
- 45% of these are classified as construction REO
- TX banks still hold over $2.5 billion in residential non-performing loans
- More than half of non-performing residential paper is 1-4 family “First-Nonaccrual” loans
- Almost $700M new residential loans have fallen into the 30 to 89 day late category for the first time
Top 10 Texas Banks with Foreclosed Construction REOs”
- Plains Capital Bank
- International Bank of Commerce
- American Bank of Texas
- Beal Bank
- Park Cities Bank
- Falcon International Bank
- Lone Star National Bank
- Texas Capital Bank
- Patriot Bank
- Inter National Bank
Top 10 Texas Banks with Non-Performing Residential First-Position Loans:
- Wells Fargo Bank South Central
- Beal Bank
- Colonial Savings
- Comerica Bank
- USAA Federal Savings Bank
- Lone Star National Bank
- Amegy Bank
- Viewpoint Bank
- Patriot Bank
Opportunity Watch: 7 Places to Drill for Texas Real Estate Deals
1. Mineral Rights
Mineral rights might be an obvious part and parcel of doing business in this oil rich state for many, but it’s often overlooked. Flipping properties stripped of mineral and timber rights is reportedly trending again and can be a way for investors to dramatically increase both short- and long-term returns.
2. Defaulting HELOCs
Surprisingly, Texas has more non-performing HELOCs than residential REOs. This has been one of the strictest states in regulating banking when it comes to protecting homeowner equity, which makes this a little surprising. However, it also hints at some incredibly profitable opportunities that move on them.
3. The New Gold Rush
It isn’t gold or even oil that is causing such mass migration in the U.S. today; it’s the hunt for work, flocking into tech start-up hubs, and the search for affordability. Texas checks all the boxes here and could certainly be stealing a lot of attention from California as the market there prices so many out of the game.
4. Trading The Hamptons for Riding with the Bulls
A series of recent reports, news articles, and statements by New York State officials highlight just how desperate New Yorkers have become to flee the high-tax region, with contrasts showing Texas beating the Empire State on just about everything for all tax types to business and economic growth prospects. Tapping into the new flow of pioneers at the point of origin could prove a sweet move that circumvents local competition.
5. Affordable New Homes
Home builders like LGI Homes have found the combination of factors in Texas so sweet they have been making a name for themselves by offering no-money-down starter homes.
6. Double Digit Returns on Rental Properties
A new report by RealtyTrac scanning metros for small real estate investors named three Texas towns in their “Top 10 markets to buy a rental property.”
7. Extreme Home Offices
It’s no secret that home offices have been trending, but some are taking it to a whole new level with expansive offices at home. Some include separate working areas for additional staff, others feature custom doors, and others come complete with wine cellars, gun cabinets, and full kitchens. Good luck getting these professionals to ever clock out early. Check out the slideshow from the Wall Street Journal.